They are all at it!

A repeated colloquialism, but in this case we are taking about investing and we are indeed all at it, actually.

Regardless of the size of your investment pot, some have more others less, you must make decisions as to how much to allocate to each opportunity. But universally it is essential to place your capital across a range of investments that balance your risk appetite and reward aspiration. This can be fun and also frightening.

Coming from a low base

We have the London market, but we are still a distance behind our American cousins in our take up on investing. According to Wealthify research, 62 percent of Brits are opting not to invest. The information is there ok, start small and enjoy it with what you can afford, is one approach.

This low base is even lower for some

The picture is worse for women, statistics on Finder show that 52 percent of UK women have never held an investment (for men its 37 percent) and take up is low in other groups, ONS statistics show that 44% of Black African and Other Asian groups have Net Negative Financial Wealth (liabilities > assets). These households were approximately twice as likely to have negative net financial wealth as those from the White British group.

Only 2 percent of us claim to have invested in a Stocks and Shares ISA. (with its generous tax exemptions). The same survey also revealed that of those who do invest, 74 percent get a buzz from it. The word needs to get round. The knowledge that the opportunity to do this tax free is currently lost on 98% of us.

Growth in investing

We are seeing the barriers to entry to Private Equity blown away. Operations such as Moonfare are making PE available at lower entry levels. (Minimum investment £100,000).

Many have revisited their investment criteria in the “thinking time” provided during the lockdowns, the online investment platforms are scrabbling to implement strategies to retain the spike in new users. We are investing in tech and scouring over smartly prepared listings, and Crowdfunding is given fuel to the latest start ups.

At the same time, we too have seen a step change in the growth in our database of qualified investors whilst we continue to pair investors interested in backing good management teams and good businesses.

Repeatedly we see the following points in the investment key criteria:

a good tech aware team (preferably 3 founders)
resilience / protection methods (EIS)
trusted NED / grown up about governance
a growth plan (profit focused, evidence of large market, size of opportunity known)
10X valuation mostly within 5 years (some happy going out to 10y)
cost to acquire & lifetime value of customers known)
A clear unique differentiator (pre-revenue ok if all the above are all ticked)

Are the tax incentives widely understood?

We see a greater take up coming from an increased understanding of the benefits of the tax incentives in this area, principally the Enterprise Investment Scheme “EIS”.

Not new, the scheme is targeted to get more investment into privately owned businesses. Also attractive to investors is the “proximity factor” seeing their investment benefit both local entrepreneurs and their immediate communities.

Yes these may come with increased risk, but the multiples can be enormous too. The ability to get a refund of 30% of your investment in your next tax return is attractive. In addition to this should the venture fail, loss relief is available on the investment, rendering the net at risk cost of each £100 invested being £39 (assuming a 45% tax rate). More attractive yet, is the upside capital gain is exempt from capital gains tax.

Each individual can invest up to £1m per annum using this incentive, companies can raise £5m per annum this way. Yes it has certain restrictions like you cannot be closely connected to the company you are investing in, but diligence and your criteria help you here. (A 50% tax relief is also available under more limited criteria, significantly a company can only raise £150k once under this generous scheme “SEIS”).

So not everyone is in fact at “it” and the tax incentives, there to encourage participation for personal benefit and the greater good (such as growing the number of business start-ups), are in reality under used.

Investing is for everyone

Chat to someone who can demystify it for you and start with little steps

Remember the tax incentives

Schemes such as EIS are an excellent route for you to invest smartly in start up businesses

Potential Investors

If you are seeking funding for your business know that there are many pre-qualified potential investors out there. Investors are very willing to see well prepared opportunities aligned to their criteria.

If you would like to know more about investing in start up or established businesses or if you are a business seeking funding partners please contact us at hello@smallharbour.com